Price formation in a matching market with targeted offers

József Sákovics

Games and Economic Behavior, 2014, vol. 87, issue C, 161-177

Abstract: We model a market where the surpluses from seller–buyer matches are heterogeneous but common knowledge. Price setting is synchronous with search: buyers simultaneously make one personalized offer each to the seller of their choice. With impatient players efficient coordination is not possible, and both temporary and permanent mismatches occur. Nonetheless, for patient players efficient matching (with monopsony wages) is an equilibrium. The setting is inspired by a labor market for highly skilled workers, such as the academic job market, but it can be easily adapted to, for example, the housing market or Internet advertising auctions.

Keywords: Diamond paradox; Efficient matching; Directed search (search for similar items in EconPapers)
JEL-codes: C78 D43 J44 (search for similar items in EconPapers)
Date: 2014
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Persistent link: https://EconPapers.repec.org/RePEc:eee:gamebe:v:87:y:2014:i:c:p:161-177

DOI: 10.1016/j.geb.2014.05.008

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